After EREing, the next monetery goal could be becoming a HNWI: High-Net Worth Individual.
Having US$1 million makes one a HNWI.
This table shows how much one should save to have a million dollars purchasing power 25 years from now assuming a rate of inflation of 2.5%. It also assumes your monthly investments increase by 2.5% every year.
Funny how the threshhold for UHNWI: Ultra High-Net Worth Individual is US$30 million.
Funny how the threshhold for UHNWI: Ultra High-Net Worth Individual is US$30 million.
Yet, to be considered rich in the US, you need $2.2MM. So my guess is that everyone who doesn't have $1M thinks being rich requires $2.2MM while investment advisors who know the reality of the situation realize they need to make those who have only $1MM feel special with an acronym but not to step on the egos of the truly rich so they give them a really special acronym. The question is, what does it mean? Accomplishment? For a little while. Status? Not when you remember that a lot of people have more. Financial security? No such thing.
Recent polls show that average US citizen thinks they need $1.27M to retire. That means average person thinks average person needs to be HNWI to retire. But there are only 22 million millionaires in US. Less than 10%. And I'm guessing most of those are not HNWI because that includes primary home equity. I'm also guessing there are less ERE2s than HNWIs is the US so apparently most people are fucked. The sub-Saharan Africa solution is not on the map because I'm assuming a person would need a militia to protect themselves in that part of the world with that type of money and my understanding is that militias are not trustworthy.
One of my weirdest adventures in frugality was when I mooched bed space and one dresser drawer in the room that my HNWI boyfriend was mooching in the very modest home of his best friend who was an Ultra-HNWI. It was kind of a good arrangement while it lasted, because the two of them would yell at each other all the time, while I just hung out reading and snacking on stuff from the giant dusty piles of Costco supplies. When the Ultra-HNWI died, there was only me left for the HNWI to yell at, so no longer a sustainable situation.
HNW starts around $5 million in assets nowadays, really more like $10-15 million. Less than that down to around a million or so nowadays puts you in a lesser group, "mass affluent".
It has to be way over $1m. FatFIRE is $2.5m in order to provide for $100k/year at 4%, and lots of people make $100k/year now. You can't like buy a new Lambo every year on that. You can afford a new Corolla if your 15-year-old one breaks maybe.
Another data point is I don't think the official definition of "accredited investor" has changed since I was part of a startup hedge fund more than 20 years ago now, and back then it was $1.5 million not counting real estate.
titles like these... may be useful for classifying large groups of population, but they don't make sense as titles for individual people. By that I maen: don't make it a goal, it will give you very little fulfillment.
Marketing surveys for wealth management. What is high and what is low? To us it depends on our expenses. To a wealth manager it is how much are they willing to accept at 1.125% of assets to fuss around with you. The motive for settling on a number is different.
My favorite marker for wealth has always been “how long can you last if you stop working today?”
I’m sure some wealth management company is designing a service to sell to people with $500k-$5M where the cost of research, client counseling and marketing among other things are all rolled into the overhead.
I feel that wealthy means you can last as long as you like.
'm also guessing there are less ERE2s than HNWIs is the US
I think there's maybe one ERE2 and arguably zero. People talking about ERE2 or taking about the people talking about ERE2 don't count here.
There's another term people in wealth-management circles circle-jerk about, High Earning Not Rich Yet, which which I presume you can identify on some level.
There's another term people in wealth-management circles circle-jerk about, High Earning Not Rich Yet, which which I presume you can identify on some level.
I talk a good game. If it happens, HNWI will primarily be a result of living and few stock picks.
Last edited by Henry on Sun Jul 30, 2023 5:13 am, edited 1 time in total.
I believe $1M in net assets still puts a household in the top 10% here in the US, so seems like a reasonable HNWI criteria.
A long while back I thought about what wealth meant to me. In and of itself, not much. It basically meant having enough with some left over. Back at the beginning of my non-whimsical retirement planning I looked at what "enough" meant. IIRC much of the thought process was done with the vocabulary of YMOYL. Essentially it come down to "enough" meant enough to cover necessities plus a few ongoing comforts plus an occasional luxury over an indefinite period of time.
I wasn't a good ere-er so I limited the thought experiment to financial capital and ignored both human and social capital in the exercise. The main benefit was really thinking about and parsing necessity vs. comfort vs. luxury in the context of potential cash outflow. That allowed me to put together a spending plan and extrapolate it to a threshold stash size. I oversaved beyond that threshold mostly in the interest of SWAN. I haven't really thought of it this way before, but arguably something on the order of half my net worth, possibly more, is tied up in the SWAN fund.
So fundamentally I agree with Sclass. Demographic thresholds for wealthy are interesting when looking at populations, but for individuals tailored definitions for wealthy/enoughness are generally more useful, IMO. It takes some courage to declare enough predicated on a modest lifestyle and run with it. More than I had, haha, with my SWAN fund being exhibit A.
Nothing wrong with targeting a second comma IMO, when a person is driven to do so. But as the chart illustrates, it can be a long slog to get there.
HNWI is $1M, VHNWI is $5M, and UHNW is $30M, all in liquid/investable assets. Why liquid? Because the designation relates to what kind of banking/financial services one might need or expect to get, that is, whether you have/need your own wealth manager instead of relying on phone trees and robo-services like the hoipolloi. These aren't even hard limits, more like conventions. If you know someone in the business, you might get in with a reference at a lower $$$ amount. When I was working in finance I was offered a hook up and while it sounded fun and impressive, I figured there was really no point to it. It's basically the wealth manager equivalent of having a lawyer or an accountant or a house cleaner. Do you really need personal assistance handling X amount of money? If so ... Otherwise ...
Accredited investor is different. This is a regulatory framework intended to protect people from their own ... enthusiasm. The household needs $1M liquid or a steady $200k/300k yearly income OR ... they need to demonstrate the ability to do math in their head (Series 7 or 65) ... OR ... they need to be insiders by either vocation or family relation in the exotic investment they're undertaking. There are still plenty of ways for unaccredited "investors" to throw their money after exotic investments. Nature, especially human nature, always finds a way.
Interestingly the OP table presumes relatively modest savings rates by ERE standards ... even for a medium salary. An ERE person willing to dedicate a lifetime to earning $50k/year would be almost guaranteed to end up somewhere between VH and UH. Think Stanley/Danko's Millionaire Next Door. There are occasional news stories of people doing just that working a modest job and then leaving $15M to some charity or endowment in their will.
I find it mathematically interesting that anybody striving to achieve steady retirement income based on SWR on large sum invested is likely overpaying for the combination of leisure time, security, and wealth they will obtain. IOW, if an individual would just straightforwardly cop to what level of wealth they would like to expect to achieve*, they could likely achieve that level more "cheaply" than they likely will as a side-effect of buying more security in SWR. OTOH, SWAN security can be more straight-forwardly achieved with financial products such as deferred annuities.
My ultra-high-net-worth friend was a poor farm kid who started following a program (sort of a combination of Wall Street Player rules mixed with Warren Buffett practice) at around the age of 28 (after being fired from a job for the second time for not being sufficiently submissive and finding himself eating from a dumpster) with the goal of becoming a millionaire. I believe he become a millionaire around age 40**, at around the same time he purchased half the financial-product-oriented business he worked for from his employer. He never retired***, even though his investments were producing more income than his business, and he died at age 80 with a net worth well north of 100 million.
*For whatever reason/value such as status, pass on to kids, competition with obnoxious ENTJ cousin, establish wildlife trust at death, etc. etc.
**Also around the age he established what would become his primary lifelong relationship with a woman who was a 16 year old street prostitute at the time they met. The love of his life was a female philosophy major who he met while he was in college on G.I. bill. He claimed that she dumped him because he refused to buy her an ice cream while on a date. He ended up somewhat regretting his choices and somehat envying one of his brothers who ended up just modestly wealthy but with a "very nice family" of devoted wife, three lovely daughters and five grandchildren.
***His rather old-school belief was that working-outside-the-home kept a man healthy into old age, but was unhealthy for a woman.
I find it mathematically interesting that anybody striving to achieve steady retirement income based on SWR on large sum invested is likely overpaying for the combination of leisure time, security, and wealth they will obtain.
I agree, this is a danger in chasing the second comma. Especially when a US based earner ignores their social security and Medicare benefits. Enough at 60 might be very little.
These labels promote an illusion that there's a "safe" level of money. But no, we still age, get sick and die. The point of diminishing financial returns can be well before HNWI.
The price is spending one's healthiest years getting money, instead of doing things that might not be feasible in a decade. Even if the body holds up, the world changes. When fixated on a magic number, it's hard to appreciate the closing paths.
Dave Ramsey has co-opted their idea and homespun it into "The Everyday Millionaire" which is a euphemism for "The Populist Millionaire." Being that from any objective measure, it's better to be a millionaire than not to be a millionaire, I give him credit for emphasizing personal agency and common sense. The irony is people are being sold on becoming millionaires and once they reach the status, they realize nothing has changed or really can change beneath $5MM. 1MM is stay in place net worth. You changed your lifestyle to get there but achieving the number does not change the changed lifestyle. It is ultimately a marketing device much the same way the HNWI designation benefits the retail investments firms. Ok, you got $1MM. Congratulations. Now lets talk about how to draw down with your anticipated expiration date in mind ie you climbed the mountain now let's go back down.
Last edited by Henry on Sun Jul 30, 2023 11:46 am, edited 1 time in total.
That's what I was getting at. It was real money before the late-90s stock market/early 00s real estate bubbles but now it supports a lifestyle a rung or two above minimum wage. (Not that that's something an EREer can't handle; I live off a good bit less, but we're talking the mainstream here.) The definition has to change with inflation.
I have some managed assets. I stayed in mostly to learn from the analyst. I’ve learned a lot about client management from the counselors. Not much about asset selection. There is a wide range of risk tolerance out there. During client dinners I used to laugh at the old people under my breath as they’d moan and groan about volatility…as if the manager could handle that along with making gains high enough to maintain their fat lifestyle. Half of the business is hand holding. So yes, if you don’t need hand holding then you’re overpaying.
I also like eating low salt dinners with a low sugar desert with a bunch of rich old folks. In the early years I was often mistaken for the bartender on break.
Over the past 15 years of signing over fees I’ve realized that the firm has been really good at keeping skittish clients in the market for long periods sprinkled with big volatility events. The phone always rings when the market clicks down sharply. They soothe clients and hold the positions while they bleed money. Over time this has been a good strategy on average. Over long periods it’s all about time in the market and not timing the market. If you can do this yourself great. If you cannot, the counselors will help you.
Over time their market par return may be higher than what a skittish index buyer would get with a few errant exits and entries while “sitting on the sidelines”. What I mean is just because you buy the index doesn’t mean you’ll be in on the best months of the market cycle…especially if you’re easily shaken. Even missing a few good days can dramatically mute one’s long term gains. Stock gains can be very bursty for lack of a better term.
The management’s strategy has been to compromise between perfect timing and being out at the wrong time by just staying in all the time. Some people cannot do this all by themselves. We think we can but this forum is full of sad anecdotes about selling at the wrong time and not entering again till things looked safe.
Given all this I think I could personally replicate their performance minus fees by getting a MSCI fund and applying their defense formula to trigger options purchases in the event the triggers are hit. They’ve been very transparent about their defense triggers so they’re easy to copy. The trip lines are set so low they’re almost never activated. All this is done with some gentle bedside manner for the low fee of 1.25%.
ETA - a common refrain I always hear at client dinners is “I’ve been with you 25 years, I’m not complaining and I’m happy with your results, but what you’ve done could have been closely matched buying the index.” This comes up over and over again. The manager thanks the person for his business and parries the question without bluntly reminding him that he may have not held his positions 27 years had he not had his hand held.
